The SCO Group Inc., just one month after being dealt a crippling blow in its legal offensive against IBM and advocates of the freely distributed Linux operating system, filed Chapter 11 bankruptcy on Friday. The small Lindon company's bankruptcy filing came on the eve of a trial -- which was to have started Monday -- over the remainder of its controversial intellectual property lawsuit against Novell Inc. News of SCO's bankruptcy sent its shares skidding more than 43 percent or 28 cents to close at 37 cents on Friday. The company had hit a five-year high of nearly $25 a share in 2003 shortly after it announced it sued IBM. Friday's bankruptcy filing, which has the effect of staying all pending litigation including Monday's trial, came after a federal judge last month found Novell, and not SCO, owns the copyrights to Unix. That ruling undermined SCO's long-held claims that IBM stole code from Unix and put it into Linux. SCO also was ordered to remit to Novell a portion of the fees it collected from selling Unix licenses to Microsoft and Sun Microsystems. Monday's trial would have examined whether SCO had the authority to collect Unix license fees and how much it would have to pay Novell for licensing fees it collected over the past few years. But SCO's bankruptcy petition came as little surprise to some, and in fact, reflects what one Linux advocate describes as "the last throes of a battle that has long since been lost." "The bankruptcy filing wasn't a surprise to anyone. The real question is: Will there be cash to get?" said James Zemlin, executive director of the Linux Foundation, a nonprofit consortium formed to foster the Linux operating system. In its bankruptcy filing, SCO listed assets of between $1 million and $100 million, and liabilities of between $1 million and $100 million. "It's not surprising that the lion's share of SCO's debts are legal bills," Zemlin said. The Florida law firm of Boies, Schiller & Flexner LLP, which is representing SCO in its legal battle against IBM and others, is listed among the Lindon company's 20 largest unsecured creditors. Other creditors include: New York legal services company Amici LLC; SCO's former venture capital provider Canopy Group; and a slew of tech companies including Sun Microsystems, Microsoft Licensing, Veritas Software, Intel Corp., Fujitsu Services and Unisys Corp. Another Linux Foundation executive, Don Kohn, says SCO may face the possibility of being forced into an involuntary Chapter 7 bankruptcy petition to liquidate its assets depending on how aggressive its creditors and Novell are in their debt recovery attempts. Novell declined to comment on its next move. "We'll be evaluating our options for pursuing our interests in this matter," said Kevan Barney, spokesman for Novell. By filing bankruptcy, SCO may buy some time to negotiate with creditors and obtain debtor-in-possession financing for its debts. In a news release Friday, SCO said its board of directors "unanimously determined that Chapter 11 reorganization is in the best long-term interest of SCO and its subsidiaries, as well as its customers, shareholders, and employees." "We want to assure our customers and partners that they can continue to rely on SCO products, support and services for their business critical operations," said Darl McBride, president and CEO of SCO Group. "Chapter 11 reorganization provides the company with an opportunity to protect its assets during this time while focusing on building our future plans," he said. Subject to court approval, SCO and its subsidiaries will use the cash flow from their consolidated operations to meet capital needs during its reorganization. SCO has filed a series of court documents to ensure that it will be able to maintain all of its commitments to its customers including paying its vendors and retaining various advisors. But Kohn questioned if the company will survive the bankruptcy filing in the long run. "Even if they emerge from Chapter 11, I can't imagine anyone wanting to risk their business by buying SCO's software," Kohn said. Zemlin said the brunt of SCO's bankruptcy filing will likely be borne by its customers and its 150-plus employees. "SCO customers will have to decide whether to continue to use its technology, or migrate to an alternative in the long run," he said. SCO officials declined to comment beyond the news release on Friday.
SCO files Chapter 11 bankruptcy
General Motors, Auto Union to Extend Labor Talks for Second Day
Sept. 15 (Bloomberg) -- General Motors Corp., the largest U.S. automaker, and the United Auto Workers have agreed to negotiate for a second day after the scheduled expiration of their four-year labor contract.
Negotiators for the Detroit automaker and the union have broken off tonight to rest after nearly non-stop talks yesterday and today, and will return to the UAW-GM training center in Detroit at 11 a.m. tomorrow, GM spokeswoman Katie McBride said. She declined to characterize the content or nature of the talks.
``It sounds like they have made significant progress,'' Al Benchich, UAW Local 909 president in Warren, Michigan, said in an interview earlier today after he was briefed by a negotiator. ``There are still some issues that they are apart on,'' he added, while declining to say what they were.
GM is seeking concessions, including an independent union retiree health-care fund, to help end losses of $11.4 billion since 2004. UAW President Ron Gettelfinger's goal is to preserve living standards, wages and benefits for his members.
Talks started July 23 and played out against the backdrop of $15 billion in combined 2006 losses for GM, Ford Motor Co. and Chrysler LLC. The three U.S.-based automakers estimated they pay $25 to $30 more an hour to American factory workers than Toyota Motor Corp. and Honda Motor Co. do at their U.S. plants.
The contract, which was set to expire at 11:59 p.m. Sept. 14, continues to be extended hour by hour, McBride said.
`Strike Target'
The Asian automakers are capturing sales and market share from GM, Ford and Chrysler, meaning the U.S. companies need fewer plants -- and fewer workers.
The UAW chose GM as the focus of negotiations, naming the company as its ``strike target'' Sept. 13. The move meant the union would concentrate on reaching an agreement with GM, then try to adapt the terms at Ford and Chrysler. Those two automakers agreed to operate under indefinite extensions of the old contract while the GM bargaining continued.
``It sounds like that if things fall apart, we're going out, and if they don't, we're not,'' Chris Sherwood, president of UAW Local 652 in Lansing, Michigan, said about 1 a.m. today. ``Right now, we're locked back down into a waiting mode.''
The UAW represents 73,454 active members and 269,614 retired members and 69,288 surviving spouses at GM, according to union figures.
``My guess is that they will settle,'' David Healy, a Burnham Securities Inc. analyst in Sierra Vista, Arizona, said yesterday before the extension was announced. ``Even if they had a short strike, they could handle it in stride, anything from a couple of weeks to a month.''
Goodyear's Model
Retiree health care emerged as a pivotal issue in the negotiations, which formally began in July. The higher labor costs for GM, Ford and Chrysler included retiree health-care obligations that totaled $114 billion at the end of 2006.
GM, Ford and Chrysler each sought to form a so-called Voluntary Employee Beneficiary Association, or VEBA, to take those retiree obligations off company books.
The popularity of the idea was boosted by a similar fund created by Akron, Ohio-based Goodyear Tire & Rubber Co. The tiremaker made a one-time contribution of $1 billion for a fund managed by the United Steelworkers union, under a contract approved in December.
Such an arrangement would represent a major departure for Gettelfinger and the UAW, which would be responsible for managing the fund and has traditionally shunned such risks.
Gettelfinger has declined to discuss the VEBA issue in public appearances. His silence didn't stop investors and analysts from studying how VEBAs might affect the auto industry.
Bonds, Credit-Default Swaps
Citi Investment Research, part of Citigroup Inc., upgraded GM to ``buy/speculative risk'' in a Sept. 13 report that projected the stock may climb to $57 with retiree obligations removed. GM rose 93 cents to $34.22 yesterday in New York Stock Exchange composite trading, and gained 16 percent for the week.
The company's 8.375 percent bond due July 2033 rose 0.5 cent to 83.5 cents on the dollar yesterday, according to Trace, the bond-price reporting system of the NASD. The yield is 10.19 percent.
GM credit-default swaps rose by 12 basis points to 673 basis points in New York, signaling that investors now consider the company at greater risk of defaulting on its debt. A basis point on a credit-default swap contract protecting $10 million of debt for five years is equivalent to $1,000 a year.
The last UAW strike against GM was in 1998 at two parts factories in Flint, Michigan. It forced the closing of 26 of the automaker's 29 North American assembly plants. That strike also canceled production of 318,000 cars and trucks and cut profit by $1.3 billion. Afterward, GM reorganized its labor department to help avoid future stoppages.
``Waiting is really a good thing because it means they are making progress,'' said Tony Gnesotti, a union worker at Local 909, which makes transmissions for GM vehicles. ``Hopefully it will get done.''